Cotton hits new rally high as supply-demand report looms

Published: Sunday, October 09, 2005

With traders looking ahead to new USDA monthly supply-demand estimates, cotton futures crept to a new rally high last week after having filled a July 11 overhead chart gap during the last week of September.

The market gained 64 points to 53.75 cents for the week through Thursday, basis December, which the prior week had filled a gap from 53.25 to 54.45. Then it hit a new high for the move of 54.70 on Thursday.

Informa Economics, a research and consulting firm based in Memphis, has estimated U.S. production at 22.58 million bales, sources said, up slightly from USDA's projection last month of 22.28 million bales.

The USDA will issue a monthly U.S. and world supply-demand report on Wednesday. The report will give a reading on the effects of recent storms on production prospects in the United States and China. There's been talk of improved prospects in India, Pakistan and Uzbekistan. The USDA's weekly export sales looked supportive, though shipments were below expectations.

U.S. all-cotton export sales during the week ended Thursday of 305,800 running bales, up from 208,600 bales the previous week and 145,200 bales during the corresponding week last year, boosted 2005-06 commitments to 6,509,300 running bales.

While shipments of 159,600 running bales declined from 208,600 bales the previous week, they exceeded exports during the corresponding week last season of 103,100 bales.

Shipments for the season reached 2,148,600 running bales, up a bulging 1,015,100 bales from a year ago. Exports constitute around 14 percent of the USDA forecast and need to average roughly 296,900 running bales a week to achieve the estimate.

Foreign crops continue to grow even in the face of a smaller prospective output in China, says Sharon C. Johnson, cotton analyst with First Capitol Group at Roswell, Ga.

Increasingly, she said, Pakistani and Indian crop prospects are looking better despite mixed weather of late in India. News of a larger crop in Uzbekistan also has surfaced.

Chinese crop losses of 500,000 to a million bales may increase China's import needs, Johnson said. But the International Cotton Advisory Committee estimates ending stocks in four major producing countries - the United States, India, Pakistan and Brazil - at 27.3 million bales, she added, more than enough to meet China's increased needs.

Those four countries are expected to account for 53 percent of the projected world carryout of 51.9 million bales, Johnson pointed out.

As for the U.S. crop, Johnson said another week of harvesting may confirm early reports that yields are better than expected in light of recent adverse weather in the Southeast and Mid-South. Output in some instances may top USDA estimates, she said.

Many observers, including Johnson, believe weather during September enhanced production prospects in the big West Texas Plains, where the irrigated acreage may yield excellent quality.

"I have not completed my surveys," Johnson said, "but in spite of the horrific effects of Hurricanes Katrina and Rita to life and limb along with property damage, cotton production may have been spared in the worst hit states or offset by increases in other regions."

Speculators increased their net long position by 9.9 percentage points during the week ended Sept. 30 to 12.6 percent of the open interest. They boosted longs by 5,209 lots and pared shorts by 5,831 lots, hiking their net longs by 11,040 lots to 13,893 lots. Meanwhile, a U.S. industry leader has challenged the world's cotton-producing countries to grow global demand by 5 million bales a year for the next five years.

National Cotton Council chairman Woods Eastland, who issued the challenge at the International Cotton Advisory Committee's 64th plenary meeting in Liverpool, said the reason that goal seems unachievable is lack of confidence in the ability to apply the right tools and right financing.

Producing countries are fighting desperately for market share because production potential is growing much more rapidly than demand, he said.

Eastland, a cotton producer and chief executive officer of Staplcotn Cooperative Association in Greenwood, Miss., said the U.S. industry is convinced the ICAC is correct in its assessment of cotton promotions.

The ICAC has estimated that had it not been for promotion over time, such as that of Cotton Inc. and the NCC's export promotion arm, Cotton Council International, the world of cotton this year would be lacking around 12 million bales of demand.

That would be the equivalent of roughly one-tenth of the total demand for cotton on an annual basis.

However, citing USDA estimates, Eastland said if cotton had held onto its 1990 share of global fiber consumption, the world now would be consuming an additional 26 million bales annually.

"In other words, if cotton had simply held its own in the rising world demand for fiber, global demand for cotton would be 20 percent greater," Eastland said, adding that this is in addition to a 10 percent gain the U.S. industry has built through its national consumer programs. The United States, where the retail market for cotton goods has grown to nearly 22 million bales a year, has seen cotton's share of fiber consumption for apparel and home furnishings rise steadily since Cotton Inc.'s campaign gained traction in the 1970s.

But every other country has experienced a stagnant or declining market share, Eastland said.

Duane Howell is retired farm editor of The Avalanche-Journal. Letters can be sent to P.O. Box 16347, Lubbock 79490, or faxed to (806) 799-7462. His e-mail address is duanehowell@door.net.